Emerging Europe property revival
International property investors are inching back to emerging Europe, lured by prospects of higher returns in markets such as Poland, whose economy has held up relatively well in a global downturn, and Russia, which is bolstered by rising crude oil prices.
After posting strong growth for over 5 years, commercial real estate investments in emerging Europe had been a washout after Lehman Brothers’ collapse in Sept ‘08, with first quarter sales hitting a record low.
As our Moscow-based property reporter Yuliya Komleva and I wrote , major property fund managers such as Germany’s DekaBank, UK’s Aberdeen, and Hines from the United States have again looking for big buys in the region, although Hungary, Ukraine and the Baltics remain largely no-go zones.
Aberdeen Property Investors’ managing director for Russia, Charles Voss, even compared Russian cities favourably against London, where the once-booming UK financial services industry has been weakened by the global financial crisis.
“They don’t anticipate all those jobs to come back immediately so the demand for office space will be weak (in the UK). Even though they are starting to get to the bottom, the growth curve in terms of additional value can be less than what can be in found Russia,” says Voss, who sits in Russia’s cultural and historical capital of St Petersburg.
With property prices diving and driving up yields in London however, investors are looking to squeeze higher returns in emerging Europe, says Jones Lang LaSalle (JLL) head of CEE Capital Markets & Investment Tomasz Trzoslo.
(This JLL graphic illustrates European office yield movement in the past year)
“If you can buy in London for 6-7 percent, why buy in Central Europe? Central Europe needs to trade at a yield premium—my guess about 150-200 basis points,” Warsaw-based Trzoslo argues.